Social Security Benefits and Bankruptcy

You receive social security payments, and you are facing a possible bankruptcy. The first question you have is, will filing for bankruptcy affect my eligibility for social security benefits? The answer is no, filing for bankruptcy will not affect your eligibility to receive social security benefits.

If you are facing a possible garnishment, there is an important limitation to a creditor garnishing your bank account. If the sole source of the income going into your bank account is social security income, the bank account cannot be garnished. But if there are other sources of income being deposited into that account, the funds become comingled and the funds lose their identity as social security money. In that scenario, funds in your bank account can be garnished even though some of the funds are social security money.

To be eligible for a Chapter 7 bankruptcy, you must be below or near the median annual income for your household size. This is determined by looking at the amount of your income over the six-month period prior to filing bankruptcy. Social security income is not counted for purposes of determining whether you are below or near the median annual income. Therefore, if your income is largely or solely social security benefits, you are likely to be considered below the median annual income for your household size. For an explanation of Chapter 7 and Chapter 13, see my article entitled, “The Difference Between Chapter 7 and Chapter 13, and Which One Is Right For You.”

To be eligible for a Chapter 7 bankruptcy, you must also have little or no ability to pay your debts over time. This is determined by subtracting your out-of-pocket expenses from your income. What you have left is your monthly disposable income. Unlike the median annual income determination, social security income does count in determining your monthly disposable income. However, if your income is largely or solely social security benefits, you are likely to be considered to have little or no ability to pay your debts over time. For an explanation of Chapter 7 and Chapter 13, see my article entitled, “The Difference Between Chapter 7 and Chapter 13, and Which One Is Right For You.”

The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.

By: Michael Benkstein, Esq.

Managing Attorney, Bankruptcy Department

The Law Offices of Joumana Kayrouz, PLLC